1. Faculty Release Time and Energy Rebates Presented by Sherry Pickering AUDIT

2. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 22 Agenda Faculty Release Time – What is it? – Legal Basis Treatment – Past Instructions – Current Year Instruction Impacts Energy Rebates – Past Instructions – Current Year Instruction Possible impacts Year-End GAAP Training

3. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 3 Faculty Release Time – What is it? A 3 rd party and the campus enter into a contract or grant where a campus employee will perform certain tasks. Typically, the campus must hire a replacement worker to carry out the tasks the employee would normally perform during the contract or grant period.

4. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 4 Faculty Release Time – What is it? The campus may contract directly for these contracts or grants, commonly referred to as State side, or An Auxiliary Organization may enter into the agreements with the 3 rd party and issue a separate contract with the campus to provide the necessary employees

5. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 5 Faculty Release Time – What is it? The contract or grant may include: – A cost matching requirement, or – May not fully release the employee, – Or…. – Terms are specified in the agreement and they vary

6. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 6 Faculty Release Time Treatment 3 rd Party Campus Service Exchange Transaction

7. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 7 Faculty Release Time and Legal Basis The majority of the employees involved in these transactions are funded from the Operating Fund (General Fund). For Legal Basis Reporting, Operating Fund equals: – Source of funds are Appropriations plus Student Fees – Expenditures supported by the source of funds Faculty Release Time transactions are eliminated from Operating Fund Legal Basis Reporting

8. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 8 Faculty Release Time and Legal Basis To facilitate the elimination of the Faculty Release Time expenditures for Legal Basis reporting, campuses: A.Reimbursed Activities B.Abatements C.Moved out of Operating Fund

9. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 9 Faculty Release Time and Legal Basis

10. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 10 Faculty Release Time and Legal Basis

11. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 11 Faculty Release Time and Legal Basis

12. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 12 Faculty Release Time – Last Year The 2009 GAAP manual clarified that Faculty Release Time transactions between the campus and a discretely presented Auxiliary Organization are exchange transactions. (GASB 34 Paragraph 61) – Expense of the released Faculty is not eliminated – Functional program code could be reported As coded in legal ledgers, or To match Auxiliary Organization functional program

13. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 13 Faculty Release Time – Last Year Campuses with qualifying transactions: – Submission of Prior Year Reclassification PBC – ‘A’ campuses required to ‘gross up’ prior year expense comparative display for MD&A

14. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 14 Management Discussion & Analysis

15. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 15 Question #1 All campuses with qualifying transactions eliminated in the prior year were required to submit the amounts on the schedule of Prior Year Reclassifications. – True – False

16. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 16 Question #1 Answer All campuses with qualifying transactions eliminated in the prior were required to submit the amounts on the schedule of Prior Year Reclassifications. – True – False

17. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 17 Faculty Release Time – This Year Systemwide policy adopted during 2009-10 Released faculty expense must not be eliminated Campus functional expense reported the same as Auxiliary Organization When a campus contracts with 3 rd parties directly: – Released faculty expense must not be eliminated – Campus functional expense reported in a category that most closely resembles the activity of the grant or contract New

18. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 18 Faculty Release Time

19. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 19 Faculty Release Time – This Year The functional expense of any required cost matching must also: – Be reported the same as the Auxiliary Organization, or – Be reported the same as the contract/grants reported on the State side

20. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 20 Faculty Release Time – This Year Cost match should be reported as restricted based on the definition of externally imposed restriction. [GASB 34 ¶ 34 as Amended by Statement 46] – Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments – Imposed by law through constitutional provisions or enabling legislation. UnrestrictedRestricted Expendable Other Debit Tuition and Fees $25 Credit Sal & Ben ($25) Debit Sal & Ben $25 Credit Tuition and Fees ($25)

21. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 21 Faculty Release Time – This Year Campuses with qualifying transactions must: – Submit Prior Year Reclassification PBC if: Released faculty expense was eliminated, or Functional expense reported did not match the Auxiliary Organization, or Sponsored Programs is run by the campus, the functional expenses reported did not reflect the activity of the grant or contract – If an ‘A’ campus must submit the Prior Year Reclassification PBC, they must also adjust the prior year expense comparative display for MD&A accordingly – Book a GAAP adjustment for reclassifications of Net Asset Category related to Cost Matching

22. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 22 Question #2 If the campus had qualifying transactions in 2009- 10 but their treatment in 2008-09 met the new standard, they have to fill out the Prior Year Reclassification PBC. – True – False

23. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 23 Question #2 Answer If the campus had qualifying transactions in 2009- 10 but their treatment in 2008-09 met the new standard, they have to fill out the Prior Year Reclassification PBC. – True – False

24. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 24 Agenda Faculty Release Time – What is it? – Legal Basis Treatment – Past Instructions – Current Year Instruction Impacts Energy Incentives & Rebates – Past Instructions – Current Year Instruction Possible impacts Year-End GAAP Training

25. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 25 Energy Incentives & Rebates – CSU Policy Executive Order 987 Most recent in a series of Executive Orders Sets goals & policies for the CSU related to Energy Conservation, Sustainable Building Practices, and Physical Plant Management for the California State University

26. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 26 Energy Incentives & Rebates – What are they? One general category of this type of transaction involves the campus constructing or installing equipment that meets the program requirements – Savings by Design – UC/CSU/IOU Partnership – California Solar Initiative Payments may be made in a lump sum based on expected performance or over a specified period of time.

27. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 27 Energy Incentives & Rebates – What are they? Common requirements of these programs include: – Time – Type of equipment or expected performance – Reimbursement – Inspection

28. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 28 Savings By Design Example Eligibility Terms: – Project must be nonresidential new or remodel within service area – Must install equipment or system specified in application which at minimum exceeds Title 24 standards Contract Conditions: – Provide documentation required for verification – Allow site inspections and participate in studies, if requested – Benefits for not less than 5 years or rated life of equipment if it is less

29. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 29 Energy Incentives & Rebates – What are they? Another general category of this type of activity involves the receipt of an incentive payment directly from a utility vendor for – Completion of a cumulative level of purchases – Customer retention – Settlements

30. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 30 Past Guidance on Recording Transactions In June 2007, guidance published by the CO with KPMG concurrence. Treatment varied for capitalized vs. non-capital expenses

31. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 31 Past Guidance on Recording Transactions Energy incentives and rebates represent a reduction of the capitalized amount. The incentive or rebate would be booked as a reduction of the related expense incurred.

32. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 32 Current Treatment – Type One Rebates offered by 3rd party are considered as “reimbursement-type” or “expenditure-driven” nonexchange transactions according to GASB statement 33 – Voluntary Nonexchange – Not imposed on the provider or recipient – Fulfillment of eligibility requirements is essential for a transaction to occur

33. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 33 Current Treatment – Type One

34. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 34 Current Treatment – Type 2 Incentive payments for: – Cumulative purchases – Retention – Settlements Exchange transactions – Reduction of the related operating expenses.

35. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 35 Question #3 Which of the following are typical requirements of 3 rd party rebate programs for the installation of specified energy efficiency equipment or systems A. Time B. Inspection C. Reimbursement D. All of the Above E. None of the Above

36. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 36 Question #3 Answer Which of the following are typical requirements of 3 rd party rebate programs for the installation of specified energy efficiency equipment or systems. A. Time B. Inspection C. Reimbursement D. All of the Above E. None of the Above

37. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 37 3 rd Party Rebates & Recognition 3 rd party may require repayment if terms are not fulfilled Time requirements frequently require equipment to be in service for a specified period of time such as the term of the useful life. – Fulfillment of this requirement occurs over time Defer recognition of revenue until the specified terms are met.

38. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 38 Savings by Design Example Campus receives a lump sum payment based on expected performance of the installed equipment or system. – Benefits for not less than 5 years or rated life of equipment if it is less

39. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 39 Other Common Programs California Solar Initiative: Program for permanently installed solar panels. – Two types of incentives: Lump sum or payments over time UC/CSU/IOU: Development and installation of efficiency projects – Incremental payments during phases as billed by the campus per program terms Self Generation Incentive Program – Various incentives based on type of self-generation technology – Use of fossil fuel for more than 25%

40. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 40 3 rd Party Rebates & FASB Auxiliaries Transactions are not limited to the campuses some auxiliary organizations are participating. Capital Asset - Full Historical Cost Rebate – Contributions [FASB ASC 958-605] – Fair Value – Contract Terms = Imposed Restrictions – Contingency

41. © 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15996ORA May 2010Year-End GAAP Training 41 Conclusion GAAP Manual Year-End Reporting Workshop | Systemwide Financial Reporting | CSU